Zurich Ins. Co. v. Baxter Intern., Inc.

• Decision Date: 20 June 1996
• Docket Number: No. 80025,80025
• Citation: 173 Ill.2d 235,218 Ill.Dec. 942,670 N.E.2d 664
• Parties: , 218 Ill.Dec. 942 ZURICH INSURANCE COMPANY, Appellee, v. BAXTER INTERNATIONAL, INC., et al. (Baxter International, Inc., et al., Appellants).
• Court: Illinois Supreme Court

Page 664

670 N.E.2d 664

173 Ill.2d 235, 218 Ill.Dec. 942

ZURICH INSURANCE COMPANY, Appellee, v. BAXTER INTERNATIONAL, INC., et al. (Baxter International Inc., et al., Appellants).

No. 80025.

Supreme Court of Illinois.

June 20, 1996.

Rehearing Denied Sept. 30, 1996.

Thomas A. Morris, Jr., Leslie Peterson and Rebecca S. Larson, of Brydges, Riseborough, Morris, Franke & Miller, of Waukegan, and Joel B. Kleinman, Leslie R. Cohen, Mark A. Packman and Teresa L. Harvey, of Dickstein, Shapiro & Morin, L.L.P., Washington, D.C., for appellants.

Bryan R. Winter, of Fuqua, Winter, Stiles & Anderson, Waukegan, Edward Dwyer, of Hodge & Dwyer, Springfield, Jay Erens, James D. Ossyra and David B. Goroff, of Hopkins & Sutter, Chicago, and Thomas W. Brunner, Laura A. Foggan, Russell D. Duncan and James M. Ludwig III, of Wiley, Rein & Fielding, Washington, D.C., for appellee.

Justice HARRISON delivered the opinion of the court:

This appeal concerns a declaratory judgment action brought in the circuit court of Lake County by Zurich Insurance Company to determine its obligations under various insurance policies issued to Baxter International, Inc., and Baxter Healthcare Corporation (referred to collectively as Baxter). The question before us is whether the circuit court abused its discretion when it issued an order pursuant to section 2-619(a)(3) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(3) (West 1992)) staying Zurich's lawsuit pending the outcome of a second declaratory judgment action involving the same issues subsequently filed by Baxter against Zurich in the state of California. For the reasons that follow, we agree with the appellate court that the stay should not have been granted. 275 Ill.App.3d 30. Subject to certain modifications pertaining to the joinder of parties, the appellate court's judgment is affirmed.

The relevant facts are undisputed. Zurich is a Swiss corporation whose main administrative offices in the United States are located in Illinois. Baxter International, Inc., and Baxter Healthcare Corporation are Delaware corporations whose corporate headquarters, including their risk management department, are also located in Illinois. According to the record, Zurich issued a series of comprehensive general liability insurance policies to Baxter covering periods between 1978 and 1986. All of these policies were delivered, issued, and serviced in Illinois by Illinois brokers and underwriters.

One of Baxter's businesses involves extracting blood factor concentrates from plasma for use in treating hemophilia. Baxter has been sued by hemophiliacs from Illinois and elsewhere who allege that these concentrates were contaminated with the human immunodeficiency virus (HIV), that the concentrates infected them with the virus, and that they suffer or expect to suffer from Acquired Immune Deficiency Syndrome (AIDS). Although the parties have not cited any evidence indicating the precise number of such lawsuits, the jurisdictions in which the suits have been filed or how many individual claimants there are, counsel represent that Baxter is involved in at least 100 cases involving more than 10,000 HIV-infected hemophiliacs. Among these are cases that are pending or have been tried in Illinois, including a class action on behalf of approximately 7,500 claimants filed in the United States District Court for the Northern District of Illinois.

In the wake of this litigation, Zurich filed the present action to obtain a declaratory judgment that it had no duty under the comprehensive general liability insurance policies it had issued to Baxter to defend the company against or indemnify it for claims pertaining to the HIV-contaminated blood factor concentrates. Baxter responded by filing its own action in California, where the blood factor concentrates were processed, asking for a declaratory judgment that Zurich did have a duty under the policies to defend and indemnify it. The California action also sought a declaratory judgment with respect to the rights and obligations of Baxter's numerous excess insurers, but all but one of those excess insurers have now been dismissed from the case.

At the outset of these proceedings Baxter claimed that it initiated the separate action in California as a "counter punch" to Zurich's lawsuit. Before this court, its position is different. The company denies that its motive is to harass Zurich or secure some tactical advantage over it. According to Baxter, its true purpose is simply to sidestep the HIV-infected hemophiliacs who have sued it.

Here, as in the appellate court, Baxter contends that under Illinois law, tort claimants are necessary parties in declaratory judgment actions regarding insurance coverage for their claims, and they must be joined in order for the declaratory judgment proceedings to go forward. Under California law, by contrast, they are not necessary parties and joinder is not required. Accordingly, Baxter contends that suing in California will enable it to resolve its insurance coverage dispute with Zurich free from participation by the legion of tort claimants who are pursuing it.

While Baxter now professes concern with simplifying its dispute against Zurich, we note that Zurich's original Illinois complaint was actually less complex than the complaint filed by Baxter itself in California. Unlike the California action, the Illinois litigation did not name any of Baxter's excess insurers. The only parties to the proceeding were Zurich and Baxter, and Baxter did not assert that the case could not proceed in that posture.

When Baxter subsequently moved to stay or dismiss the Illinois action, it did not do so on the grounds that Zurich's original complaint was defective and should be dismissed for failure to join necessary parties. Instead, it invoked section 2-619(a)(3) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(3) (West 1992)), which provides that a defendant may move for dismissal or other appropriate relief on the grounds that "there is another action pending between the same parties for the same cause." Baxter also argued that the case was premature.

The idea that there might be a problem with failure to join necessary parties did not arise until it was raised by the circuit court, sua sponte. Although the court denied Baxter's motion to dismiss, the court was concerned that Illinois law might require joinder of the underlying tort claimants in cases such as this, as Baxter now asserts. The court gave the parties the opportunity to brief the issue and present arguments at a series of hearings, after which it concluded that the underlying tort claimants were necessary parties and must be joined before the case could proceed. The court further concluded that the joinder problem could not be avoided by using class action procedures or by relying on the doctrine of representation.

Rather than dismiss Zurich's complaint outright, the circuit court continued the case, giving the company leave to file an amended complaint addressing the joinder problem. Zurich responded by filing a new complaint that named as parties Baxter's excess insurers and the particular underlying claimants over whom the Illinois courts could assert in personam jurisdiction. In this version of its complaint, Zurich dropped its request for a comprehensive declaration of its rights and obligations under the Baxter insurance policies. Instead, it limited its prayer for relief to the circumstances presented by the particular claimants it had actually joined as parties.

Baxter did not deny that this approach resolved the circuit court's joinder concerns. Its attack on Zurich's action took a new turn. Baxter now filed a new motion to dismiss under section 2-619(a)(3) of the Code, arguing that the Illinois action should be stayed pending resolution of the case in California because, in its amended form, the Illinois action was now less "comprehensive" than its California counterpart. The circuit court agreed with Baxter's argument, and on October 25, 1994, it entered an order granting the stay requested by Baxter.

Several days later, on a motion filed by Zurich, the circuit court also made a written finding under Supreme Court Rule 308 (155 Ill.2d R. 308) that its previous orders with respect to the issue of joinder involved questions of law as to which there is substantial ground for difference of opinion and that an immediate appeal may materially advance the ultimate termination of the litigation. The particular questions of law identified by the circuit court were (1) whether the underlying claimants and excess insurers did in fact have to be joined as necessary parties for the case to proceed, and (2) whether the court correctly refused to allow Zurich to use a class action mechanism or to rely on the doctrine of representation in lieu of joining the individual claimants from the underlying tort actions against Baxter.

Once the circuit court entered its findings, Zurich sought leave to appeal under Supreme Court Rule 308 (155 Ill.2d R. 308) from the circuit court's orders concerning the issue of joinder. Although the appellate court denied Zurich's application, we entered an order in the exercise of our supervisory authority requiring the appellate court to hear Zurich's Rule 308 appeal on the merits. We subsequently clarified that order to make clear that our instructions were not meant to bar Baxter from arguing that Zurich had waived its right to contest the joinder issues.

At the same time it was pursuing this Rule 308 appeal, Zurich also filed an interlocutory appeal as of right from the circuit court's order staying the Illinois declaratory judgment action pending resolution of the action in California. 155 Ill.2d R. 307(a)(1). The appellate court subsequently consolidated this appeal with Zurich's appeal under Rule 308, reversed the circuit court's stay, and remanded the cause for trial, holding, inter alia, that Zurich had not waived its right to...